Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit

Matthew Freedman, David Neumark and Shantanu Khanna ()

No 28594, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We evaluate the effects of one of a new generation of economic development programs, the California Competes Tax Credit (CCTC), on local job creation. Incorporating perceived best practices from previous initiatives, the CCTC combines explicit eligibility thresholds with some discretion on the part of program officials to select tax credit recipients. The structure and implementation of the program facilitates rigorous evaluation. We exploit detailed data on accepted and rejected applicants to the CCTC, including information on scoring of applicants with regard to program goals and funding decisions, together with restricted access American Community Survey (ACS) data on local economic conditions. Using a difference-in-differences approach, we find that each CCTC-incentivized job in a census tract increases the number of individuals working in that tract by over two – a significant local multiplier. We also explore the program’s distributional implications and impacts by industry. We find that CCTC awards increase employment among workers residing in both high income and low income communities, and that the local multipliers are larger for non-manufacturing awards than for manufacturing awards.

JEL-codes: H25 H71 J68 R11 R23 R58 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-lab and nep-pbe
Note: LS PE
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Published as Matthew Freedman & Shantanu Khanna & David Neumark, 2023. "Combining rules and discretion in economic development policy: Evidence on the impacts of the California Competes Tax Credit," Journal of Public Economics, vol 217.

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Journal Article: Combining rules and discretion in economic development policy: Evidence on the impacts of the California Competes Tax Credit (2023)
Working Paper: Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit (2021)
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